1 | IAS 19 Employee Benefits

IAS 19 EMPLOYEE BENEFITS FACT SHEET 2 | IAS 19 Employee Benefits

This fact sheet is based on existing requirements as at 31 December 2015 and it does not take into account recent standards and interpretations that have been issued but are not yet effective.

IMPORTANT NOTE This fact sheet is based on the requirements of the International Financial Reporting Standards (IFRSs). In some jurisdictions, the IFRSs are adopted in their entirety; in other jurisdictions the individual IFRSs are amended. In some jurisdictions the requirements of a particular IFRS may not have been adopted. Consequently, users of the fact sheet in various jurisdictions should ascertain for themselves the relevance of the fact sheet to their particular jurisdiction. The application date included below is the effective date of the initial version of the standard. 3 | IAS 19 Employee Benefits

IASB APPLICATION DATE (NON-JURISDICTION SPECIFIC) IAS 19 is applicable for annual reporting periods commencing on or after 1 January 2013.

OBJECTIVE The objective of IAS 19 is to prescribe the and disclosure for employee benefits. The standard requires an entity to recognise: a. a liability when an employee has provided service in exchange for employee benefits to be paid in the future; and b. an when the entity consumes the economic benefits arising from service provided by an employee in exchange for employee benefits.

SCOPE IAS 19 is applied by an employer in accounting for all employee benefits, except those to which IFRS 2 Share-based Payment applies. 4 | IAS 19 Employee Benefits

RECOGNITION AND MEASUREMENT Defined contribution plan Accounting for defined contribution plans is Types of employee benefits straightforward because the reporting entity’s obligation IAS 19 deals with the following employee benefits: for each period is determined by the amounts to be contributed for that period. Consequently, no actuarial • short-term benefits (e.g. wages) assumptions are required to measure the obligation • post-employment benefits (e.g. retirement benefits) or the expense and there is no possibility of any actuarial gain or loss. • other long term benefits (e.g. long service leave) Moreover, the obligations are measured on an undiscounted • termination benefits basis, except where they are not expected to be settled Short-term Employee Benefits wholly before twelve months after the end of the annual reporting period in which the employees render the When an employee has rendered service to an entity related service. during an , the entity shall recognise the undiscounted amount of short-term employee benefits When an employee has rendered service to an entity expected to be paid in exchange for that service: during a period, the entity shall recognise the contribution payable to a defined contribution plan in exchange for that • As a liability (accrued expense), after deducting any service: amount already paid. If the amount already paid a. as a liability (accrued expense), after deducting any exceeds the undiscounted amount of the benefits, an contribution already paid. If the contribution already entity shall recognise that excess as an (prepaid paid exceeds the contribution due for service before expense) to the extent that the prepayment will lead to, the end of the reporting period, an entity shall for example, a reduction in future payments or a recognise that excess as an asset (prepaid expense) refund. to the extent that the prepayment will lead to, for • As an expense, unless another IFRS requires or permits example, a reduction in future payments or a cash the inclusion of the benefits in the cost of an asset (see, refund. for example, IAS 2 Inventories and IAS 16 Property, Plant b. as an expense, unless another IFRS requires or permits and Equipment). the inclusion of the contribution in the cost of an asset An entity shall recognise the expected cost of short-term (see, for example, IAS 102 and IAS 116). employee benefits in the form of paid absences as follows: Defined benefit plan accounting is complex and is likely to require the use of an actuary – refer to detailed guidance a. in the case of accumulating paid absences, when in IAS 19. the employees render service that increases their entitlement to future paid absences Defined benefit plans b. the case of non-accumulating paid absences, when Accounting for defined benefit plans is complex because the absences occur. actuarial assumptions are required to measure the obligation and the expense and there is a possibility of An entity shall measure the expected cost of accumulating actuarial gains and losses. Moreover, the obligations are paid absences as the additional amount that the entity measured on a discounted basis because they may be expects to pay as a result of the unused entitlement that settled many years after the employees render the related has accumulated at the end of the reporting period. service. An entity shall recognise the expected cost of profit- Accounting by an entity for defined benefit plans involves sharing and bonus payments when, and only when: the following steps: a. the entity has a present legal or constructive a. determining the deficit or surplus. obligation to make such payments as a result of past This involves: events; and i. using an actuarial technique, the projected unit b. a reliable estimate of the obligation can be made. credit method, to make a reliable estimate of A present obligation exists when, and only when, the entity the ultimate cost to the entity of the benefit that has no realistic alternative but to make the payments. employees have earned in return for their service in the current and prior periods (IAS 19 paragraphs Post-employment benefit plans 67–69). This requires an entity to determine how Post-employment benefit plans are classified as either much benefit is attributable to the current and defined contribution plans or defined benefit plans, prior periods (IAS 19 paragraphs 70–74) and to make estimates (actuarial assumptions) about depending on the economic substance of the plan demographic variables (such as employee turnover as derived from its principal terms and conditions. and mortality) and financial variables (such as future increases in salaries and medical costs) that will affect the cost of the benefit (IAS 19 paragraphs 75–98). ii. discounting that benefit in order to determine the present value of the defined benefit obligation and the current service cost (IAS 19 paragraphs 67–69 and 83–86). 5 | IAS 19 Employee Benefits

iii. deducting the of any plan (IAS 19 Other long-term employee benefits paragraphs 113–115) from the present value of the Other long-term employee benefits include items such as defined benefit obligation. the following, if not expected to be settled wholly before b. determining the amount of the net defined benefit twelve months after the end of the annual reporting liability (asset) as the amount of the deficit or surplus period in which the employees render the related service: determined in (a), adjusted for any effect of limiting a a. long-term paid absences such as long-service or net defined benefit asset to the asset ceiling (IAS 19 sabbatical leave; paragraph 64). b. jubilee or other long-service benefits; c. determining amounts to be recognised in profit or c. long-term disability benefits; loss: d. profit-sharing and bonuses; and i. current service cost (IAS 19 paragraphs 70–74). e. deferred remuneration. ii. any past service cost and gain or loss on settlement (IAS 19 paragraphs 99–112). The measurement of other long-term employee benefits is not usually subject to the same degree of uncertainty iii. net interest on the net defined benefit liability as the measurement of post-employment benefits. For (asset) (IAS 19 paragraphs 123–126). this reason, this Standard requires a simplified method of d. determining the remeasurements of the net defined accounting for other long-term employee benefits. Unlike benefit liability (asset), to be recognised in other the accounting required for post-employment benefits, comprehensive income, comprising: this method does not recognise remeasurements in other i. actuarial gains and losses (IAS 19 paragraphs 128 comprehensive income. and 129); Termination benefits ii. return on plan assets, excluding amounts included An entity shall recognise a liability and expense for in net interest on the net defined benefit liability termination benefits at the earlier of the following dates: (asset) (IAS 19 paragraph 130); and • when the entity can no longer withdraw the offer iii. any change in the effect of the asset ceiling (IAS 19 of those benefits; and paragraph 64), excluding amounts included in net • when the entity recognises costs for a restructuring that interest on the net defined benefit liability (asset). is within the scope of IAS 37 Provisions, Contingent Where an entity has more than one defined benefit plan, Liabilities and Contingent Assets and involves the the entity applies these procedures for each material plan payment of termination benefits. separately. An entity shall measure termination benefits on initial An entity shall determine the net defined benefit recognition, and shall measure and recognise subsequent liability (asset) with sufficient regularity that the amounts changes, in accordance with the nature of the employee recognised in the financial statements do not differ benefit, provided that if the termination benefits are an materially from the amounts that would be determined at enhancement to post-employment benefits, the entity the end of the reporting period. shall apply the requirements for post-employment Refer to IAS 19 for detailed requirements and guidance on benefits. Otherwise: accounting for defined benefit plans. a. if the termination benefits are expected to be settled wholly before twelve months after the end of the annual reporting period in which the termination benefit is recognised, the entity shall apply the requirements for short-term employee benefits. b. if the termination benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period, the entity shall apply the requirements for other long-term employee benefits. 6 | IAS 19 Employee Benefits

DISCLOSURES Refer Appendix 1 for a checklist to assist with IAS 19 disclosure requirements.

DEFINITIONS

Defined contribution plans Post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Defined benefit plans Post-employment benefit plans other than defined contribution plans. Employee benefits All forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment. Other long-term employee benefits All employee benefits other than short- term employee benefits, post-employment benefits and termination benefits. Post-employment benefit plans Formal or informal arrangements under which an entity provides post-employment benefits for one or more employees. Post-employment benefits Employee benefits (other than termination benefits and short term employee benefits) that are payable after the completion of employment. Short-term employee benefits Employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. Termination benefits Employee benefits provided in exchange for the termination of an employee’s employment as a result of either: a. an entity’s decision to terminate an employee’s employment before the normal retirement date; or b. an employee’s decision to accept an offer of benefits in exchange for the termination of employment.

RELATED INTERPRETATIONS • IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction 7 | IAS 19 Employee Benefits

AUSTRALIAN SPECIFIC REQUIREMENTS

The Australian equivalent standard is AASB 119 Employee Benefits.

REDUCED DISCLOSURE REQUIREMENTS (RDR) On 30 June 2010, the Australian Accounting Standards Board published AASB 1053 Application of Tiers of Australian Accounting Standards (and AASB 2010-2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements) which established a differential reporting framework, consisting of two Tiers of reporting requirements for preparing general purpose financial statements: a. Tier 1: Australian Accounting Standards; and b. Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements. Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. A Tier 2 entity is a ‘reporting entity’ as defined in SAC 1 Definition of the Reporting Entity that does not have ‘public accountability’ as defined in AASB 1053 and is not otherwise deemed to be a Tier 1 entity by AASB 1053. RDR is applicable to annual periods beginning on or after 1 July 2013. The requirements that do not apply to RDR entities are identified in Appendix 1 by shading of the relevant text. Additional disclosure requirements that are applicable to RDR entities only are included in a separate table in Appendix 1. 8 | IAS 19 Employee Benefits

APPENDIX 1 – DISCLOSURE CHECKLIST

This checklist can be used to review your financial statements. You should complete the “Yes / No / N/A” column about whether the requirement is included. To ensure the completeness of disclosures, provide an explanation for “No” answers.

YES / EXPLANATION CODE NO / N/A (If required) DEFINED CONTRIBUTION PLANS IAS 19.53 Has the entity disclosed the amount recognised as an expense for defined contribution plans? IAS 19.54 Where required by IAS 24, has the entity disclosed information about contributions to defined contribution plans for key management personnel? DEFINED-BENEFIT PLANS IAS 19.131 Has the entity offset an asset relating to one plan against a liability relating to another plan when, and only when, the entity: a. has a legally enforceable right to use a surplus in one plan to settle obligations under the other plan; and b. intends either to settle the obligations on a net basis, or to realise the surplus in one plan and settle its obligation under the other plan simultaneously? IAS 19.135 Has the entity disclosed information that: a. explains the characteristics of its defined benefit plans and risks associated with them (see paragraph 139); b. identifies and explains the amounts in its financial statements arising from its defined benefit plans (see paragraphs 140–144); and c. describes how its defined benefit plans may affect the amount, timing and uncertainty of the entity’s future cash flows (see paragraphs 145–147)? IAS 19.137 If the disclosures provided in accordance with the requirements in this Standard and other IFRSs are insufficient to meet the objectives in paragraph 135, has the entity disclosed additional information necessary to meet those objectives? IAS 19.138 Has the entity assessed whether all or some disclosures should be disaggregated to distinguish plans or groups of plans with materially different risks? 9 | IAS 19 Employee Benefits

YES / EXPLANATION CODE NO / N/A (If required)

IAS 19.139 Has the entity disclosed: a. information about the characteristics of its defined benefit plans, including: i. the nature of the benefits provided by the plan; ii. a description of the regulatory framework in which the plan operates; iii. a description of any other entity’s responsibilities for the governance of the plan; b. a description of the risks to which the plan exposes the entity, focused on any unusual, entity-specific or plan-specific risks, and of any significant concentrations of risk; and c. a description of any plan amendments, curtailments and settlements? IAS 19.140 Has the entity provided a reconciliation from the opening balance to the closing balance for each of the following, if applicable: a. the net defined benefit liability (asset), showing separate reconciliations for: i. plan assets. ii. the present value of the defined benefit obligation. iii. the effect of the asset ceiling. b. any reimbursement rights. Has the entity also described the relationship between any reimbursement right and the related obligation? 10 | IAS 19 Employee Benefits

YES / EXPLANATION CODE NO / N/A (If required)

IAS 19.141 Each reconciliation listed in paragraph 140 shall show each of the following, if applicable: a. current service cost; b. interest income or expense; c. remeasurements of the net defined benefit liability (asset), showing separately: i. the return on plan assets, excluding amounts included in interest in (b). ii. actuarial gains and losses arising from changes in demographic assumptions (see paragraph 76(a)). iii. actuarial gains and losses arising from changes in financial assumptions (see paragraph 76(b)). iv. changes in the effect of limiting a net defined benefit asset to the asset ceiling, excluding amounts included in interest in (b). An entity shall also disclose how it determined the maximum economic benefit available, ie whether those benefits would be in the form of refunds, reductions in future contributions or a combination of both. d. past service cost and gains and losses arising from settlements. As permitted by paragraph 100, past service cost and gains and losses arising from settlements need not be distinguished if they occur together; e. the effect of changes in foreign exchange rates; f. contributions to the plan, showing separately those by the employer and by plan participants; g. payments from the plan, showing separately the amount paid in respect of any settlements; h. the effects of business combinations and disposals. IAS 19.142 Has the entity disaggregated the fair value of the plan assets into classes that distinguish the nature and risks of those assets, subdividing each class of plan asset into those that have a quoted market price in an active market (as defined in IFRS 13 Fair Value Measurement) and those that do not? IAS 19.143 Has the entity disclosed the fair value of the entity’s own transferable financial instruments held as plan assets, and the fair value of plan assets that are property occupied by, or other assets used by, the entity? 11 | IAS 19 Employee Benefits

YES / EXPLANATION CODE NO / N/A (If required)

IAS 19.144 Has the entity disclosed the significant actuarial assumptions used to determine the present value of the defined benefit obligation (see paragraph 76)? Such disclosure shall be in absolute terms. If the entity provided disclosures in total for a grouping of plans, has it provided such disclosures in the form of weighted averages or relatively narrow ranges?

IAS 19.145 Has the entity disclosed: a. a sensitivity analysis for each significant actuarial assumption (as disclosed under paragraph 144) as of the end of the reporting period, showing how the defined benefit obligation would have been affected by changes in the relevant actuarial assumption that were reasonably possible at that date; b. the methods and assumptions used in preparing the sensitivity analyses required by (a) and the limitations of those methods; c. changes from the previous period in the methods and assumptions used in preparing the sensitivity analyses, and the reasons for such changes? IAS 19.146 Has the entity disclosed a description of any asset-liability matching strategies used by the plan or the entity, including the use of annuities and other techniques, such as longevity swaps, to manage risk? IAS 19.147 To provide an indication of the effect of the defined benefit plan on the entity’s future cash flows, has the entity disclosed: a. a description of any funding arrangements and funding policy that affect future contributions; b. the expected contributions to the plan for the next annual reporting period; c. information about the maturity profile of the defined benefit obligation. This will include the weighted average duration of the defined benefit obligation and may include other information about the distribution of the timing of benefit payments, such as a maturity analysis of the benefit payments? 12 | IAS 19 Employee Benefits

YES / EXPLANATION CODE NO / N/A (If required) MULTI-EMPLOYER PLANS IAS 19.148 If an entity participates in a multi-employer defined benefit plan, has it disclosed: a. a description of the funding arrangements, including the method used to determine the entity’s rate of contributions and any minimum funding requirements; b. a description of the extent to which the entity can be liable to the plan for other entities’ obligations under the terms and conditions of the multi-employer plan; c. a description of any agreed allocation of a deficit or surplus on: i. wind-up of the plan; or ii. the entity’s withdrawal from the plan d. if the entity accounts for that plan as if it were a defined contribution plan in accordance with paragraph 34, it shall disclose the following, in addition to the information required by (a)–(c) and instead of the information required by paragraphs 139–147: i. the fact that the plan is a defined benefit plan. ii. the reason why sufficient information is not available to enable the entity to account for the plan as a defined benefit plan. iii. the expected contributions to the plan for the next annual reporting period. iv. information about any deficit or surplus in the plan that may affect the amount of future contributions, including the basis used to determine that deficit or surplus and the implications, if any, for the entity. v. an indication of the level of participation of the entity in the plan compared with other participating entities. DEFINED BENEFIT PLANS THAT SHARE RISKS BETWEEN ENTITIES UNDER COMMON CONTROL

IAS 19.149 If an entity participates in a defined benefit plan that shares risks between entities under common control, has it disclosed: a. the contractual agreement or stated policy for charging the net defined benefit cost or the fact that there is no such policy; b. the policy for determining the contribution to be paid by the entity; c. if the entity accounts for an allocation of the net defined benefit cost as noted in paragraph 41, all the information about the plan as a whole required by paragraphs 135–147; d. if the entity accounts for the contribution payable for the period as noted in paragraph 41, the information about the plan as a whole required by paragraphs 135–137, 139, 142–144 and 147(a) and (b)? 13 | IAS 19 Employee Benefits

YES / EXPLANATION CODE NO / N/A (If required)

IAS 19.150 The information required by paragraph 149(c) and (d) can be disclosed by cross-reference to disclosures in another group entity’s financial statements if: a. that group entity’s financial statements separately identify and disclose the information required about the plan; and b. that group entity’s financial statements are available to users of the financial statements on the same terms as the financial statements of the entity and at the same time as, or earlier than, the financial statements of the entity. IAS 19.151 Where required by IAS 24, has the entity disclosed information about: a. related party transactions with post- employment benefit plans; and b. post-employment benefits for key management personnel? IAS 19.152 Where required by IAS 37, has the entity disclosed information about contingent liabilities arising from post-employment benefit obligations? 14 | IAS 19 Employee Benefits

ADDITIONAL DISCLOSURE REQUIREMENTS APPLICABLE TO RDR ENTITIES ONLY

YES / EXPLANATION CODE NO / N/A (If required)

AASB 119 RDR140.1 An entity applying RDR is not required to disclose the reconciliations specified in paragraphs 140 and 141 for prior periods. 15 | IAS 19 Employee Benefits

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